ECHELON CONTRACTS LTD

Executive Summary

ECHELON CONTRACTS LTD demonstrates a stable financial foundation typical for a startup in civil engineering, with positive working capital and equity but moderate leverage and high debtor levels. While the balance sheet shows a generally healthy condition, the company should focus on improving cash flow management and carefully controlling debt to ensure sustainable growth. Proactive financial oversight will help maintain resilience and support future expansion.

ECHELON CONTRACTS LTD - Analysis Report

Company Number: 15076159

Analysis Date: 2025-07-20 14:17 UTC

Financial Health Assessment: ECHELON CONTRACTS LTD (To 31 August 2024)

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1. Financial Health Score: B-

Explanation:
ECHELON CONTRACTS LTD, a newly incorporated private limited company in the civil engineering sector, has shown a generally stable financial position in its first accounting period. The company exhibits healthy working capital and net asset base relative to its size and age, but moderate leverage and a relatively high current liabilities level compared to cash reserves suggest cautious monitoring is warranted. The absence of profitability data limits a comprehensive profitability evaluation but overall, the company appears financially sound with room for improvement.

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2. Key Vital Signs

Metric	Value (£)	Interpretation
Current Assets	436,694	Good level of short-term assets indicating liquidity potential.
Cash	86,331	Moderate cash reserves, provides some buffer for immediate obligations but not overly strong.
Debtors	350,363	Large debtor balance; cash tied up in receivables could affect cash flow if collections slow.
Current Liabilities	317,411	High short-term obligations, slightly less than current assets but requires active management.
Net Current Assets	119,283	Positive working capital, signaling ability to cover short-term debts comfortably.
Fixed Assets (Net Book)	90,254	Investment in tangible assets mainly vehicles and machinery, showing operational capacity.
Long-term Liabilities	84,466	Hire purchase contracts indicating moderate leverage; manageable but increases risk.
Provisions for Liabilities	22,564	Potential future costs accounted for; prudent to keep an eye on nature of provisions.
Net Assets / Shareholders' Funds	102,507	Positive equity base indicating the company is solvent and not over-leveraged.
Employees	11	Small workforce consistent with the company size; manageable overhead.

Vital Sign Interpretation:
The company’s balance sheet shows a "healthy pulse" with positive net current assets and net assets, indicating solvency and liquidity. However, the reliance on debt financing (hire purchase) and substantial receivables suggest "symptoms" that could become distress signals if cash conversion slows or liabilities increase.

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3. Diagnosis

• Liquidity: ECHELON Contracts maintains a positive working capital of £119k, meaning it can meet its short-term obligations with current assets. However, the cash balance of £86k, while reasonable, is modest relative to current liabilities of £317k. The high debtor balance (£350k) suggests cash flow may be "bottlenecked" if collections lag, a common issue in construction where payment terms can be extended.

• Leverage & Solvency: The company has long-term hire purchase liabilities (£84k) plus provisions (£22k), which represent committed future outflows. Net assets of £102k confirm positive equity, but the gearing ratio (debt relative to equity) is moderate, implying a mild level of financial risk. This leverage is not unusual for a startup in a capital-intensive sector but calls for prudent management of debt.

• Asset Management: Investment in fixed assets (£90k in tangible assets) shows operational capability, but depreciation charges and vehicle hire purchase commitments mean ongoing costs. The high debtor balance should be monitored closely to avoid cash flow strain.

• Profitability: The absence of income statement data limits profitability insights, but the retention of £102k in earnings (retained earnings) suggests some profit or capital injection since incorporation. The company should ensure it generates sustainable profits to support growth and debt servicing.

• Governance & Control: The directors, including a project manager as the main director and a significant shareholder controlling 50-75%, indicate concentrated control which can be beneficial for swift decision-making but may also limit checks and balances.

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4. Recommendations

1. Enhance Cash Flow Management:
   Prioritize speeding up debtor collections and consider negotiating better payment terms with clients and suppliers to maintain a "healthy cash flow" and reduce reliance on external financing.

2. Monitor Leverage:
   Carefully manage hire purchase liabilities and provisions. Avoid accumulating additional high-cost debt until a strong, predictable profit stream is established.

3. Build Cash Reserves:
   Aim to increase cash holdings to cover at least 3-6 months of current liabilities to buffer against payment delays or unexpected expenses.

4. Profitability Focus:
   Develop a clear budget and forecasting process to track profitability and ensure operational efficiency, especially given the capital-intensive nature of civil engineering projects.

5. Governance Improvements:
   Consider adding financial expertise at the board level or external advisors to provide oversight and strategic guidance, particularly as the company grows.

6. Regular Financial Reviews:
   Schedule quarterly financial "health checks" to spot any emerging "symptoms" such as cash shortages or rising debt, enabling timely interventions.

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